CERC's relief for Sasan may trigger similar demand

Experts say if electricity duty rates for a plant change for no fault of the developer, the higher cost has to be borne by consumers

The latest ruling by the Central Electricity Regulatory Commission (CERC) allowing a Rs 571-crore relief to Reliance Power under the ‘change in law’ clause of the power purchase agreement (PPA) of its 4,000-megawatt (Mw) Sasan power plant could trigger demands for similar relief by other generators, say experts.

Any relief under Change in Law is certainly give-able. Such rules are not written in stone and if the electricity duty structure related to a plant changes for no fault of the developer, the increased cost has to be borne by consumers as pass-through in tariff. This opens a window for similar demands by other projects,” said a former power secretary, who did not wish to be identified.

The Anil Ambani-promoted company had on Monday said the central electricity regulator had approved a compensation of Rs 571 crore to be claimed from the procurers of electricity from its Sasan Ultra Mega Power Project (UMPP) in Singrauli district of Madhya Pradesh on account of change in law during operation. While the commission’s order allows recovery of one-time compensation of Rs 271 crore till July 2015, it has also approved a tariff hike of nine paise per unit or seven per cent increase for recovery of Rs 300 crore a year over 25 years of the PPA term.

The compensation has been allowed on account of increase in electricity duty rate and energy development cess on sale of power to the Madhya Pradesh and on auxiliary power consumption. The compensation amount would be paid for by all the procurers of Sasan UMPP together. Apart from the lead procurer Madhya Pradesh, Punjab, Uttar Pradesh, Delhi, Haryana, Rajasthan and Uttarakhand are the other buyers.

“CERC’s order clearly establishes the principles of change in law in line with the terms of the PPA between Sasan Power and the procurers, which will also ease pass-through of future change in law impacts on Sasan UMPP,” Reliance Power said in a statement.

Madhya Pradesh had in April 2012 enacted the new Electricity Duty Act increasing the duty on sale of power from two paise a unit to five paise a unit. The same legislation had also increased the electricity duty on auxiliary power consumed by a generating company from eight per cent of the discom tariff to 15 per cent. Another legislation was enacted by Madhya Pradesh in 2013 requiring the generating companies to pay an energy development cess to the state government at Rs 0.15 a unit.

The regulator worked out the impact of the three developments – increase in electricity duty, auxiliary consumption and energy development cess – on the company based on separate formulae and concluded the claims by the generator were admissible as Change in Law under the provisions of the PPA.

CERC, however, declined to accept Reliance Power’s request for permitting the company to levy the charges in future – through supplementary invoices on the procurers -- without prior determination of charges by the Commission. The Sasan project is currently operating at 100 per cent capacity utilisation. The plant accounts for a major chunk of 6,000-Mw of Reliance Power’s operating capacity.